Wetland mitigation banking is a market-based approach to wetland regulation that seeks to compensate for permitted wetlands losses through the creation, restoration or enhancement of wetland areas of equivalent value. Generally mitigation banks are in a centralized location outside of the area of loss. Mitigation banks are intended to compensate for lost wetland functions and values, like flood storage, wildlife habitat and water purification.

In the past fifteen years mitigation banking has gained acceptance as a valid means of satisfying compensatory mitigation requirements with the federal government and most states. More recently mitigation banks have been stimulated by the national goal of no net loss of wetlands. Some wetland regulators believe that wetlands are replicable, promising the replacement of wetland functions. This allows for the destruction of wetlands while satisfying no net loss requirements. However, there is little scientific evidence suggesting the technical feasibility of wetland replications to compensate for most lost wetland functions or even the ability to replicate most wetland types.

Rhode Island's wetland regulations are some of the strongest in the country and currently Rhode Island is one of a few states not planning to utilize any form of mitigation banking. However, there are political currents in the state suggesting there will soon be a weakening of wetland protection in the state. A recently submitted wetlands’ bill suggests that wetlands may soon be protected based upon their functions. Functional protection is a prior condition for wetland mitigation banking, because it establishes a hierarchical system of wetland protection based upon perceived functions.

Federal and state agencies have utilized mitigation banking systems as a response to the failures of on-site mitigation efforts. In Rhode Island, regulatory agencies have utilized avoidance and minimization mechanisms for wetland impacts, rarely relying on on-site mitigation. As such, Rhode Island does not have a failure of on-site mitigation efforts that would justify a move to a mitigation banking system. The state is in the position of deciding the viability of mitigation banking on it own merits, using the experience of other states.

The majority of Rhode Island's wetlands are of types that presently are the least replicable. This suggests that it would be difficult to comply with the guidelines for the use and establishment of mitigation banks outlined by the federal government. Recognizing these limitations, mitigation banking could be integrated into long-range watershed based wetland preservation and restoration efforts by addressing the functional needs of specific watersheds. Mitigation banking would, however, represent a fundamental paradigm shift in the state of Rhode Island. Individual wetlands would be protected based upon the functions that they provide to society; wetlands with limited functions potentially would be subject to destruction and attempts would be made to replicate their functions elsewhere.